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The Top 5 Most Frequent Out-Of-Pocket Medical Expenses

From the advent of the Great Society in the 1960's through the implicit assurances of the Affordable Care Act (aka "Obamacare"), the promise has been consistent: individuals who receive medical insurance through one of these programs would have access to good medical care at the lowest possible cost. That promise, however, has not always been borne out by reality. Over the past fifty years, the average annual out-of-pocket medical expenses incurred by most Americans has skyrocketed to more than $2,700 per person. That cost is in addition to whatever premiums are paid for medical insurance, either directly or through employer-sponsored health care plans.

The first step toward controlling and limited out-of-pocket medical expenses is to understand where they are coming from. Virtually every individual, regardless of whether that person has medical insurance, will face some combination of these five common out-of-pocket expenses.

1. Deductibles. The deductible medical out-of-pocket expenses that you will pay are similar to the deductible expenses on your car insurance. With your car, in exchange for lowering your collision insurance premium, your insurance company requires you to pay for the first few hundred dollars in damages when you get into an accident. Likewise, your medical insurer charges a lower premium in exchange for your payment of the first few hundred dollars of costs that you incur when you see a doctor or receive a medical service. Unlike with your car, however, you might need several appointments with your doctor and you might receive multiple different services, each of which can incur a separate deductible. Because of this, most medical insurance plans will limit the total amount of deductibles that you will pay over the course of a year as well as your total lifetime out-of-pocket deductibles that you will incur while you are enrolled in a health care plan. Still, deductible out-of-pocket expenses can run into the thousands of dollars every year.

2. Copayments. Copayments are the initial upfront cost that you pay before any insurance benefits are paid to a service provider. Copayment amounts are typically on the order of $15 to $100 per appointment or service. Medical insurance providers rely on copayments to discourage people from seeking unnecessary medical care. If the provider sets a copayment too high, however, you might run the risk of declining care, which can exacerbate a medical condition. Thus, insurers attempt to strike a balance between setting copayments high enough to prevent frivolous medical consultations but not so high that necessary assistance is declined.

3. Coinsurance. Coinsurance is like a copayment, but rather than being set at a defined amount, your coinsurance cost will be calculated as a percentage of the total cost of the medical appointment or procedure after the deductible has been factored in. For example, if your medical insurance plan imposes a 20% coinsurance obligation with a $100 deductible, for a medical procedure that is billed at $500, you will first pay the $100 out-of-pocket deductible cost, plus 20% of the remaining $400 cost of the service. Your total out-of-pocket cost for that service will therefore be $180.

4. Non-Covered Costs and Expenses. The great debate continues over the types of medical costs and expenses that insurance companies are required to cover. Within the context of that debate, it is unlikely that certain costs and expenses will ever be covered. This includes out-of-pocket costs for things like aspiring and over-the-counter cold medications, as well as many other non-prescription medications.

5. Elective Medical Procedures. Cosmetic medical procedures, including, for example, botox injections and rhytidoplasties (i.e. face lifts) will not be covered by medical insurance unless they are deemed to be "medically necessary". This is consistent with the purpose of insurance, which is to cover risks and not to compensate people for their choices.

The bad news of growing out-of-pocket medical expenses is offset, at least in part, by a continued focus on how those expenses can be controlled. Aiuto LLC is one of the many consulting firms that is helping its clients with solutions, including its MedPut product, to reduce out-of-pocket medical costs and to make quality health care more affordable and available for everyone. Please see our website for more information on how you can help your employees to control and minimize these costs.